The underlying arbitration between Progas and Pakistan was conducted under the UNICTRAL rules. The tribunal issued an award finding against the claimants on causation grounds. It also found against the claimant on numerous other grounds as well. Costs were awarded in the defendant’s favour in the amount of c £8m. The claimant then alleged s68 serious irregularity and issued fresh proceedings in the English Court. The defendant sought security for costs of the s68 proceedings and an order that monies should be paid into Court in respect of the costs of the arbitration. The claimant was funded in the arbitration and in the s68 application by a subdisiary of Burford. Although Burford had contracted with the claimant not to accept any responsibility for the adverse costs, it subsequently wrote a letter to the Court saying that costs up to a maximum of £482,029.19 would be paid (these being the costs of the s68 application) if necessary. The Court found that this letter was not a letter that was legally enforceable by the defendant and was not an undertaking to the Court to meet the costs. The Court held that it was “no answer for a claimant facing an application for security for costs to point to an ability on the part of the defendant to make a different application (under section 51) against a different party (a funder - in this case, Burford)”. The effect of the letter was to lead the Court to question that if Burford was willing to meet an adverse costs order, why could it not put the claimant into the position where they could provide security to the defendant? As a result, the Court was in no doubt that the correct course was to require the claimant to provide security of £400k. As the Court pithily observed “Burford is in the business of providing litigation finance and, as such, ought not to find it overly difficult to furnish the Claimants with the necessary security to enable them, in turn, to comply with an order for security for costs made against the Claimants”.

The more concerning application was the one concerning the costs of the underlying arbitration. Burford had not written a letter in respect of these. The defendant’s primary challenge was to the funder – the funder ought to be regarded as "the real party" and, as such, as a party which is now seeking to take advantage of the Court's power to review arbitration awards for its own benefit, whilst at the same time not having to pay the costs of the arbitration. The argument was that if the Claimants (and the funder) wished to have 'a further go' at realising commercial benefit from the arbitration, then, it was only reasonable that they should first secure the costs which they have to date caused the Defendant to incur. The Court declined to order the security but the case stands as an example of just how aggressive defendants can become once they appreciate that a commercial funder is on the scene. Whilst it is tempting to have sympathy with the Court’s somewhat simplistic approach as to the ability for a funder simply to write a cheque for the amount of the security, it does not actually reflect the practical reality for funder and claimant if it alters the risk profile of the investment in a material way. It is why it is essential from the outset of a case to consider the implications of a security for costs application, and to price it in to the deal up front. Any late surprise on security when the case is far along is not going to be a happy situation for anyone. The tensions that could arise could do real damage to the piece of litigation, and therefore the funder’s investment.

http://www.bailii.org/ew/cases/EWHC/Comm/2018/209.html